Athenahealth Paying Dearly to Take on Larger Rivals

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Athenahealth is a high-flier in the Boston business community, led by the outspoken and forceful Jonathan Bush. Bush, however, openly admits that his Watertown, MA-based company (NASDAQ:ATHN) is relatively unknown outside of local business and technology circles—including among most U.S. physicians. Athena has been ramping up efforts to raise its profile among doctors, the target audience for its Internet-enabled billing and electronic health records services. Yet the company has been criticized for the relatively high price of the push.

Athena’s stock price dropped more than 18 percent after it disclosed on April 29 that its first-quarter profits slid 80 percent, from $1.5 million in the first three months of 2009 to $300,000 in the same quarter of this year. Despite a 33 percent jump in revenue during the first quarter, the company said, profits were down partially because of its increased spending on efforts to gain more customers. Some analysts on Wall Street have slammed the firm’s spending, but company officials are forging ahead with the strategy despite the criticism.

About 16,400 physicians currently use Athena’s Internet software and services to manage their billing, and a goal of the company’s marketing is to grow its customer base to 100,000 doctors. To reach that target number, Athena is spending money on measures to get doctors to warm up to the firm’s relatively new concept of charging customers at a rate that fluctuates depending on how well its billing system performs for them. The company gets a cut of its customers’ revenue, based in part on how much the firm collects from health insurance companies, rather than making most of its money from software sales and licensing fees, as some its competitors do. Athena is also making the case that its software, which is delivered over the Internet, reduces doctors’ need to invest in servers to handle the workloads and operation of its technology.

Nevertheless, Athena appears to be fighting against at least a few currents in healthcare. Doctors are notoriously hesitant to adopt new technologies like Athena’s. Also, the company will have trouble matching the marketing might of its larger competitors such as GE Healthcare, Allscripts-Misys Healthcare, and Siemens Medical Solutions. Allscripts, for example, has about 10 times as many physician customers as Athena and more salespeople beating the pavement to grow that user base further still, says George Hill, an analyst for Leerink Swann, a Boston-based investment bank and equities research firm.

“The problem here is that Athena now has to increase its … Next Page »